Lloyd's warns of "uncertainty and volatility" in energy supplies

Green energy systems are becoming even more essential in securing energy supplies and protecting the environment, according to a new report from Lloyd’s 360 Risk Insight and UK think tank Chatham House.

The report, Sustainable Energy Security: Strategic Risks and Opportunities for Business, warns of an era of "uncertainty and volatility" in energy supplies. Price spikes and supply disruptions will become more frequent due to rising consumption, insufficient investment, and threats to installations and transport.

The cost and associated risks will push up the price of fuel at the pump and have a knock on effect on a wide range of commodities in the short to medium term such as wheat and steel. Combined with political pressure to reduce greenhouse gases and protect our environment this will force businesses to be more efficient consumers of energy and adopt clean and renewable technology.

It adds that a reliance on fossil fuels is pushing the search for reserves into more difficult and risky territories as declining production from ‘easy’ oil reserves combines with rising demand from developing economies, the report said, highlighting the current oil spill in the Gulf of Mexico as an example.

However, this could spur on the transition to more cost-efficient clean and renewable energy systems.

Richard Ward, Lloyd’s chief executive, said: “The current generation of business leaders need to rethink their approach to energy risks or be left behind as energy becomes less reliable and more expensive. The environmental and economic cost of our reliance on fossil fuels is too high. We need a long-term plan to reduce consumption and diversify our energy sources.”

Bernice Lee, research director at Chatham House said: “Businesses across the board need to make a serious assessment of their vulnerability to change and volatility on the energy scene. There are huge opportunities as energy systems evolve to include users and increase resilience and efficiency. There is also the potential for heavy or even catastrophic financial and environmental losses.”

The expected level of investment in renewables and clean energy – up to $500bn per year by 2050 – holds "tremendous opportunities for business," but the lack of global agreement on carbon reduction is inhibiting commitment and investments, it said. The report calls on governments set clear policies and create certainty in the transition to a low carbon economy.

The report also warns for a need to prepare for a new set of risks as energy systems changes. Many renewable technology systems use rare materials and the increasing reliance on electricity and IT could raise vulnerability to cyber attacks. Businesses are advised to reassess global supply chains and increase the resilience of their operations.